In the Battle for Rooftop Solar, Advocates are Running Low on Ammunition

Solar advocates and California utilities have come to a temporary truce after a heated battle over the future of distributed solar regulation. Florida and the Carolinas are home to similar battles but, with the highest penetration of solar power in the country, California exemplifies the novel challenges of an electricity grid heavily reliant on variable renewable energy generation. How this decision plays out will outline how other states finance and regulate the rapid rise of solar capacity.

The California Public Utility Commission (CPUC) proposed a rollback of net energy metering (NEM) compensation, the program through which private solar owners are paid for the excess energy produced by their solar panels. They maintain that a shift to a Net Billing Tariff, from a retail rate compensation, will accelerate climate goals, improve grid reliability, and provide more resources for low- and medium-income consumers. Solar advocates quickly vilified the utilities, labeling the proposed shift as a profit grab and an existential threat to equity and decarbonization.

Escalating rhetoric both condoning and condemning the proposed regulation tends to conflate common goals, so a persuasive case for any one specific goal gets lost amid the hyperbole. Let’s break down some of these goals:

Increase renewable capacity.

Previously, cost was the main barrier to the adoption of renewable energy generation. But since 2010, subsidies and tax credits have increased demand, attracted innovation, and reduced costs to such an extent that utility scale solar is now the cheapest source of power on the market. Because the current NEM model overcompensates solar owners at a high cost to other rate payers, a new compensation model has gained popularity. An avoided cost model would pay consumers at a rate that more closely reflects the cost of utility generation. But the recent proposal doesn’t just reduce the subsidy, it gets rid of it and instead charges consumers for use of the grid.

Theoretically, there is no difference between being compensated or being charged in the same way that subsidies and taxes have the same effect. The current model increases rates across the board and provides relief to those with solar panels, but a tariff would allow utilities to decrease rates. In either case, solar gets built and rates, for at least some, go down. The big difference is that the price signal goes from “Please build” to “we’ll do it, but a battery would be great.”

Some have characterized this switch as the utility’s attempt to maintain a monopoly hold on energy generation, but there’s more nuance. The problem utilities want to solve has shifted from cost to intermittency.

In a wholesale market, marginal costs reflect fuel costs, and the highest marginal cost generator sets the price for everyone. The marginal cost of solar is near zero because the sun is free. This competition structure typically rewards solar power and reduces profits for high-cost fuel generation, like coal or expensive gas, but is predicated on the idea that load serving entities can chose when to put a generator online. Solar can’t be discharged at will. It all goes onto the grid at the same time—when there’s sun. Without sufficient storage or load shifting capacity, solar gets pitted against itself in a wholesale market and sometimes solar generators don’t get paid. This issue, sometimes referred to as value deflation, has caused the value of solar in California to fall by around 37% since 2014.

More solar is not the answer until we’ve solved the problem of intermittency. Until that happens, utilities depend on back up generation that runs on gas, which could increase or prolong dependence on fossil fuels and threaten decarbonization goals. Utilities aren’t villainous in the quest for decarbonization. You could say short-sighted, but they’re just trying to solve the problem at hand.

Equity.

The common criticism facing NEM is that the cost burden of subsidized generation shifts onto non-solar owners, predominantly lower income customers. Solar advocates typically rebut with a programmatic response: community solar programs offer wider access to NEM benefits for different customer classes, including low-income consumers.

Unfortunately, it doesn’t directly address the underlying problem causing inequity, instead often making it worse. Every additional person who signs up for NEM shifts more costs onto those without it. The only ways to alleviate this inequity through community solar is either no one signs up, or everyone does. This equilibrium already exists in a way if we consider the role of a utility. Not only is everyone already signed up, but utility scale solar can be up to three times cheaper than customer-sited solar.

Rebates and tariffs are Band-Aids on the bullet hole. Utility rates and the way they are currently designed are both inherently regressive. NEM is not the only source of cost shift: where people live, how much energy they use, and what time they use it also influences rates. Redesigning rates will be the most efficient way to address equity, but decreasing the cost of generation is a step in the right direction in the meantime.

Something else?

While there are benefits to rooftop solar that shouldn’t be minimized—more efficient land use, energy democratization, or the economic stimulus of California’s solar industry—these are tangential if not out of scope for the problem being addressed by proposed regulation. The goal is reliable, cost-effective, decarbonized energy delivery. The problem that needs to be solved is intermittency, for which the solution is not more solar.

But there’s another problem in the way for which distributed energy is the perfect, if not the only, answer.

Utilities cut power to certain areas during high-risk situations to avoid adding fire to the flame, so to speak. In October 2019, a particularly brutal outage triggered by PG&E resulted in an estimated $2.5 billion in social damages. Distributed energy, paired with the right technologies, can create resilience to extreme events like wildfires.

The CPUC’s proposed changes are on hold for reconsideration, while discussions in other states are just heating up. But if the solar industry really wants to fan the flames, they should talk about resilience of the grid.